NAVY BRIBERY SCHEME DETAILED IN ‘ROAD MAP’

Donald Vangundy, 55: Pleaded guilty to conspiracy to commit bribery, wire fraud and filing false tax returns, and sentenced to 41 months in prison. Received more than $125,000 in cash and gift cards, $116,000 in goods from bike and hobby shops, and $35,000 in home remodeling services. Must pay restitution of $501,096.

Kiet Luc, 53: Pleaded guilty to wire fraud conspiracy and filing a false tax return, and sentenced to 30 months in prison. Received $400,000 in checks, $240,000 in gift cards and cash, $12,000 in electronics, and a $3,700 massage chair. Must pay restitution of $718,548.

Brian Delaney, 56: Pleaded guilty to wire fraud conspiracy, and sentenced to three years’ probation and 30 consecutive weekends in federal prison. Received $50,000 in labor and materials for home remodeling, three televisions worth $5,000, and a $3,700 massage chair. Must pay restitution of $60,600.

David Lindsay, 57: Pleaded guilty to wire fraud conspiracy, and sentenced to same term as Delaney. Received $40,000 in cash and gift cards, $20,000 in home remodeling services, and a $1,500 massage chair.

Kenneth Ramos, 53: Pleaded guilty to conspiracy to commit bribery and bribery of a public official, and sentenced to five years’ probation and 30 consecutive weekends in prison. Received more than $10,000 in cash, jewelry and electronics. Must pay restitution of $5,000.

Jesse Denome, 49: Owner of JD Machine Technology. Pleaded guilty to conspiracy and filing a false tax return, and sentenced to five years’ probation and 30 consecutive weekends in prison. Provided cash, and bicycle and hobby gifts to Vangundy. Must pay restitution of $80,048.

Robert Ehnow, 46: Owner of L & N Industrial Tool & Supply. Convicted March 4 of bribery, wire fraud and money laundering conspiracy, and scheduled to be sentenced May 20.

Joanna Loehr, 52: Owner of Centerline Industrial Inc. Convicted March 4 of bribery, wire fraud and money laundering conspiracy, and scheduled to be sentenced May 20.

In June 2011, Donald Vangundy sat down at his home computer and began to type out an extraordinary, eight-page document.

A civilian worker for the Navy for more than three decades, Vangundy called it a “A Road Map.”

In rambling sentences and lengthy paragraphs, the document outlined his version of how he was able to get away with a near decade-long bribery scheme, where he raked in more than $400,000 worth of bribes from North County defense contractors who were supplying parts and equipment for a military aircraft maintenance program at North Island Naval Air Station in Coronado.

The “map” is one of a handful of previously undisclosed documents that piece together how a midlevel worker like Vangundy was able to orchestrate a fraud and bribery scheme that robbed U.S. taxpayers of millions of dollars.

How did it happen?

Court records and trial testimony show government safeguards that should have been in place were not, so for years no one caught on. The main defense contracts that Vangundy and his co-defendants exploited were written to be intentionally vague and to circumvent normal procedures for procuring materials.

Vangundy helped write those contracts and administer them. The contracts did not call for yearly audits, which are normally required.

They also did not call for a crucial fail-safe: a contracting officers representative, someone specifically designated to monitor how a government contract is being administered.

The scheme started small, with cash payments or a bottle of liquor to Vangundy from defense contractor Jesse Denome. And then it grew: expensive remote-controlled airplanes, a 42-inch flat screen TV, tires and rims for his wife’s Mini Cooper. The number of people involved grew, as did the bribes handed out.

A half dozen televisions, Apple computers, top-grade kitchen appliances all went to the bribery ring.

“There’s no way to account for where everything that was paid for under these contracts went,” said Assistant U.S. Attorney Robert Huie, who prosecuted the case. “We had a very difficult time tracking that.”

The trial

A federal jury last week convicted the owners of two Poway defense contracting firms of bribing Vangundy and his cohorts. Robert Ehnow, owner of L & N Industrial Tool & Supply, and Joanne Loehr, owner of Centerline Industrial Inc., were found guilty of conspiracy, bribery and wire fraud. Prosecutors said they received $4.5 million between them in government work under the scheme.

A third contractor, Michael Graven of X & D Supply in Carlsbad, got $2 million in government work. He is serving an 18-month sentence after pleading guilty; Ehnow and Loehr face years in prison when sentenced in May.

Vangundy was a witness at the trial of Ehnow and Loehr — the only two of the 11 defendants charged in the bribery case who didn’t plead guilty.

In his “road map,” Vangundy blamed a culture at the base that pressured workers to get the materials needed quickly to repair aircraft being used to fight the wars in Afghanistan and Iraq. Getting tools, equipment and supplies through normal channels can take time and require several different levels of approval.

Vangundy suggested drawing up a type of contract that lists items routinely purchased but does not specify amounts or delivery times. It also requires far less paperwork or documentation.

That makes the procurement process faster, but with one very large pitfall. The way the contracts were written made it “much easier to provide himself cover,” Vangundy told investigators in February 2011, after they had searched the base.

He made the declaration in a confidential memo that was the result of a “proffer” session, where subjects of investigations meet with federal authorities and tell them all they know but with the understanding it won’t be used against them in court.

The scheme

The bribery ring was centered in a program repairing E2 Hawkeye and C-2 Greyhound planes at the Fleet Readiness Center Southwest at North Island.

Five civilian workers were involved: Vangundy, who started as the tool control manager for the program and in 2007 was promoted to supervise and authorize purchase and replacement of tools at the center; his co-worker Kiet Luc; two supervisors, Brian Delaney, the deputy program manager, and David Lindsay, the supervisory production controller; and Kenneth Ramos, who worked in the business office.

Each benefited in different ways. Luc collected $240,000 in gift cards and cash. Delaney got $50,000 in labor and materials to remodel his home, and Lindsay $20,000 for his home remodel.

Here’s how the scheme worked, as described in court filings, memos and testimony.

Contracts for tooling and tooling-related products used to repair the planes were inked in 2007 with L & N and X & D. They were for one base year and three renewable option years, at a total of about $400,000 for L & N and $1 million for X & D.

The L & N contracts called for supplying “kitting services,” toolboxes used in repairing C-2s, and reamers, tools that create holes in metal. The X & D contract was for items such as abrasives, drill bits and wire brushes.

With the contracts in place, Vangundy began to ask the contractors to pay for personal items for himself and friends. Often it was in the form of gift cards to Lowe’s, Best Buy or the Apple store.

Vangundy told investigators that Graven of X & D would also supply gift cards for Red Wing work shoes. Vangundy said he would hand these out to the workers when a Red Wing shoes sales truck would come on the base.

After workers had purchased the shoes of their choice, Vangundy demanded they return the cards to him with whatever money was left on them.

After buying the bribe items, the contractors would then bill the government, rolling the costs of the bribes into invoices for services allowed under the contract. Sometimes, they included markups of as much as 25 percent.

The scheme also included fraud. Vangundy and Luc would ask contractors to provide materials not called for under the contracts, often for the buildings and offices at the Fleet Readiness Center. These items would be billed falsely as kitting or reamer services.

At first, the requests would be for materials just outside the scope of the contract, Graven testified, such as a particular drill bit or special tool.

“Then it got a little broader,” he said. “It would be, we need some computers for our offices. And then it got exponentially crazier as time went on.”

Ehnow paid for an expensive bike fork Vangundy wanted. Luc and Delaney each ended up with $3,700 massage chairs in their homes.

“It got pretty brazen, because the people doing it knew no one was looking,” said Frank Vecchionne, the lawyer for Delaney.

In one contract, L & N estimated 100 “kitting services” would be needed over a four-year period at a cost of $5,431. But in June 2010 alone, the contractor billed the Navy for 2,491 kitting services, at a cost of $138,872.

In Vangundy’s “road map,” he wrote that as the pace of exploiting the contracts picked up, “it became impossible to track what was a legitimate program requirement and what wasn’t.”

He said his boss, Delaney, put pressure on the workers to do jobs quickly, creating an environment to “work around the process of procurement.”

At first, Vangundy said, he tried to create a spreadsheet to track all the spending, “but it was like trying to single-handedly control a large fire hose.”

The scheme may have continued unnoticed if not for an anonymous tip in late 2010 to a government anti-fraud hotline.

Huie, the prosecutor, said no one in the Navy noticed the criminal activity because the scheme co-opted not only line workers such as Luc, but also supervisors such as Delaney and Lindsay.

But Kevin McDermott, the lawyer for Ehnow, said during the trial that the Navy should have noticed.

“With all the Navy personnel out there,” he told jurors, “no one sat down and said: ‘What are you doing here?’ ”

The aftermath

The sentencing of Ehnow and Loehr in May will close what has been a three-year probe into the bribery ring on the Navy base.

A spokesman for the Fleet Readiness Center blamed the corruption on the five civilian employees and said the organization has taken a number of steps to “strengthen existing controls and procedures.” An executive committee now reviews procurement requests, said spokesman Mike Furlano.

He declined to make any member of the command staff available for interviews.

Gerald Blank, Vangundy’s lawyer, said investigators targeted a “little guy” — his client. When Vangundy was sentenced in October, Blank said contractors plying workers with gifts to get business was nothing new at the base. “This has been going on (at) that island for a long time,” he said.

For his part, Vangundy said at the end of his eight-page “road map” that he took responsibility for his actions but believed the Navy’s system was flawed.

He pointed the finger at management’s “get-the-job-done” attitude, and contractors who knew how to work the system and had unfettered access to the base. Those issues have to be fixed, he said.

He ended with a warning: “I must say, I am not the only one by far. There will be more in the future.”